While it's always hard to handicap the Monday following options expiration, it could set up for a back-test all the way to 940 if the May peak of 930 can be recaptured and held. A Monday rally is where one might usually anticipate an option expiration hangover after a rally into expiration could set the stage for the plug to be pulled again for the Russell indices rebalancing at the end of next week.



Such a pattern would be in the context of an A-leg down (the decline into Tuesday/ Wednesday) a B-leg retracement, and a C-leg down to possible move below 900. Such a move into the ideal range near 888 S&P into the time of rebalancing would set the market up for a test of the bullish case -- and another rally into July.

That will be the test for the market as in moves into the pivotal seventh month of the year. Why?

1. I recently showed the analogue from 1990 with the June/ July peaks and the roll over the second half of the year.

2. July sets up as an harmonic of the year being 180 degrees in time from the January top, 120 degrees from the March low, and 60 degrees from the May top. A possible cycle of high to low to high to high.

3. There are an abundant number of other cycles, such as the cycle from 2001, which project a July peak.

4. Quarter's end window-dressing on one of the best quarters ever will be under Hoofy’s belt.

5. The market will be well past the point of recognition from late March, when it became apparent that a longer-lasting rally phase was playing out. Translation: Mid-June/July will be past the 90-day holding period in which large institutions can sell without adverse tax consequences.

Consequently, if you're bullish, I would look for a low next week either on Tuesday or into Friday to set up a move into July. I would also look to ring the cash register on trading profits into a test of 926 (to as high as a back-test of 940) if 930 can be exceeded.

But time is more important than price: The 3-day chart turned down on Tuesday for the first time since May 20, indicating that the first 2 consecutive higher highs on the daily chart must be observed for a possible pivot high, as it will carve out a Minus One, Plus Two sell pattern.

A Minus One part of the set up occurs when the 3-day chart turns down on 3 consecutive lower lows; the Plus Two piece of the pattern occurs on the first 2 consecutive highs.

Because this Monday was a 90% down day, which usually elicits a snapback, caution is warranted on any back-test snapper into Monday that carves out a Minus One, Plus Two sell setup.